Tuesday, January 17, 2012

Why is long run aggregate supply uncorrelated to average price level?

The long term supply is not depended on current market demand and price.It depends on long term expectations,govt policies,fashion change,new products,product becoming obsolete etc.It depends on long term projections of profitability,MEC,population growth etc.Keynesian theory is for a very short period in which,key parameters,policies,market conditions remain more or less unchanged.

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